If you were wondering how substantial a role pension benefits play in the economy at large, particularly as defined benefit plans are increasingly giving way to defined contribution plans such as 401(k)s, a new report has examined just that question.
A report from the National Institute on Retirement Security, “Pensionomics 2016: Measuring the Economic Impact of Defined Benefit Pension Expenditures,” found that economic gains attributable to defined benefit pensions in the U.S. are “substantial.”
Retiree spending of pension benefits in 2014 generated $1.2 trillion in total economic output, supporting approximately 7.1 million jobs across the United States. Pension spending also made up a substantial portion of government income from taxes, with retirees paying a total of $190 billion in federal, state and local taxes on their pension benefits and spending during 2014.
The report provided such details as the fact that nearly $519.7 billion in pension benefits were paid to 24.3 million retired Americans. That broke down into $253 billion paid to 9.6 million retired employees of state and local governments and their beneficiaries (typically surviving spouses); $78.8 billion paid to 2.6 million federal government retirees and beneficiaries; and $187.9 billion paid to 12.1 million private sector retirees and beneficiaries.
Not only did that money serve to support 7.1 million jobs, which paid aid $354.8 billion in labor income, it also supported $1.2 trillion in total economic output nationwide and $627.4 billion in value added (GDP).
In multiplier effects, the study said, each dollar paid out in pension benefits supported $2.21 in total economic output nationally. The industries that saw the largest employment impacts were the food services, real estate, health care, and retail trade sectors.
Defined benefit pensions provided more reliable support to the economy, the report said, because recipients are less reluctant than recipients of income from 401(k) plans to spend that income, particularly if the latter experience market downturns that take a toll on their savings. In fact, the study compared the stabilizing effect of defined benefit pensions on the economy to that of Social Security.
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